Regulator Clarifies Microsoft Probe, Monopoly Stance

SAIC defends anti-trust probes at rare briefing

China’s anti-monopoly regulator wants to set the record straight: Reports that Microsoft (Nasdaq: MSFT) is being probed for monopolistic behavior related to its Windows operating system and Office suite of products are incomplete. In fact, the US software giant is also being probed for monopolistic behavior related to its Internet Explorer web browser, and its media player product.

Perhaps this clarification doesn’t sound that strange to anyone outside China, but it’s actually quite unusual coming from the highly secretive State Administration for Industry and Commerce (SAIC). The regulator is one of 2 government agencies conducting a wide range of recent anti-trust probes into mostly foreign firms, raising concerns among multinationals and western governments that they are being unfairly targeted by Beijing for such probes.

That’s not quite the case, according to the SAIC. In newly published remarks from a rare press conference, the agency says that software and other high-tech products are just one of several areas being probed for anti-competitive behavior. It added that a range of other industries, many dominated by state-run firms, are also being targeted for similar probes into monopolistic behavior.

So, what exactly is going on here? Based on what we’re seeing, it appears that leaders in Beijing are getting worried about the growing perception that China is hostile towards foreign investors. That’s not difficult to understand, since the list of foreign firms being probed over the last year runs a wide range including everyone from Microsoft and US smartphone chip giant Qualcomm (Nasdaq: QCOM), to car makers GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG) and numerous drug and milk powder makers.

Beijing can hardly afford such a negative perception just as its economy shows signs of a major slowdown, since foreign investment is a key component of its economic growth. What’s more, there are growing signs that western governments may be considering filing a complaint against China with the World Trade Organization (WTO) for discriminating against foreign companies.

All of that said, let’s zoom in with a closer look at the defensive remarks from SAIC, which is one of 2 government regulators that conduct anti-trust probes. The other is the powerful state planner, the National Development and Reform Commission (NDRC). I’ve followed this type of news for years now, and this is the first time I can remember anyone from either of these 2 secretive agencies holding a new briefing to discuss anything with outsiders.

According to the reports, SAIC head Zhang Mao not only sought to clarify that the Microsoft probe included Internet Explorer and the company’s media player, but also added that Microsoft has not been fully transparent with providing sales data for its Windows and Office products. (English article; Chinese article) The Microsoft probe was first disclosed last month, but since then SAIC’s only public comment on the matter had come in remarks warning Microsoft not to interfere with the investigation. (previous post)

In the latest remarks, Zhang points out that tech, cars and milk powder aren’t the only industries being probed for anti-competitive behavior. Other sectors being probed include tobacco, insurance and utility services, all of which are dominated by big state-run monopolies. Perhaps such investigations are occurring, and we really have no reason to believe that Zhang is lying. But if that’s the case, then the SAIC might consider publicizing such similar investigations into the big state-run firms to dispel the perception that such probes are targeting foreign companies.

As a longtime China watcher, I actually have to commend the SAIC for its unusual decision to come out and explain its actions. Microsoft was famous for operating a near monopoly for years in many product areas in the west, and came under similar investigations in the US and Europe that resulted in landmark settlements. Likewise, companies like Qualcomm and some luxury car makers also engage in strong-arm pricing tactics that capitalize on their strong market position.

At the end of the day, this spate of probes could actually be productive for both China, the foreign companies and Chinese consumers. On the one side, it could teach Beijing regulators that they need to be more transparent about their actions and decisions. At the same time, it will show foreign companies that they can’t abuse their market dominance to engage in unreasonably high pricing for their products in China.

Bottom line: The SAIC’s rare attempt to explain its recent wave of anti-trust probes is an important step toward higher transparency, and could ease concerns of growing Chinese protectionism.

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